Fitch Rates Ventura County PFA, CA's LRBs 'AA'; Outlook Stable

SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has rated Ventura County Public Financing Authority,
California's (the authority) bonds as follows:

--$293.1 million lease revenue bonds (LRBs) series 2013A at 'AA';

--$10.9 million lease revenue refunding bonds series 2013B at 'AA'.

The bonds will sell via negotiated sale on or about February 27.
Proceeds from the series 2013A bonds will be used to construct a
replacement wing for the county's medical center, to pay down $20.7
million of the county's commercial paper program, and to make other
improvements. The 2013B bonds will defease the county's outstanding 2003
certificates of participation for net present value savings.

In addition, Fitch assigns the following rating to Ventura County,
California (the county):

--Implied general obligation bonds (GOs) at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The LRBs are secured by payments from the county to the authority for
use of three essential assets, subject to abatement. Additional security
includes a debt service reserve fund (DSRF) funded at 50% of maximum
annual debt service (MADS).

SOLID LEGAL STRUCTURE: The LRB's one-notch distinction from the GOs
reflects the sound legal structure, including a covenant to budget and
appropriate lease payments, essential leased assets, standard insurance
provisions, and 24 months of rental interruption insurance. However, the
DSRF is sized to just half of IRS maximum levels.

ABOVE AVERAGE LOCAL ECONOMY: The moderately diverse local economy is
strong, with high income levels, a fairly mature tax base, and adequate
access to the large and diverse Los Angeles employment market. However,
less mature portions of the county's housing market were significantly
impacted by the recession, and unemployment data is mixed.

SOUND DEBT PROFILE: The county's debt burden is low to moderate, capital
needs after this issuance are limited, and the other-post employment
benefits (OPEB) liability is minimal. However, debt amortization is slow
and the sizable unfunded pension liability is projected to result in
significant future contribution hikes.

GOOD MANAGEMENT PRACTICES: The county is working towards meeting its
sound minimum fund balance policy, the budget must be structurally
balanced by policy, and labor relations are good. There also appears to
be good alignment between management and policymakers with regard to
implementation of conservative management practices.

CREDIT PROFILE

Ventura County serves a population of 832,000 residents, bordering Los
Angeles County to the southeast and Santa Barbara to the northwest. The
county benefits from adequate access to the large and diverse Los
Angeles employment market, and the local economy is reasonably
well-diversified.

HISTORICALLY AGRICULTURAL ECONOMY NOW MODERATELY DIVERSIFIED

In recent decades the county has diversified away from its agricultural
roots, with major employers in government, health care, technology and
military. However, agriculture still plays a significant role in the
economy, with residents supportive of policies meant to prevent
conversion of farmland to other uses. The county's largest employer is
the Naval Base Ventura County, with 17,000 employees.

The local economy benefits from average to above-average income levels.
Median household income equals 125% and 146% of state and national
levels, respectively, though per capita levels are on par with the
national average. Poverty levels of 9.9% of the population also compare
well to the state and national rates of 14.4% and 14.3%, respectively.

Employment levels contracted significantly in 2009 and have not yet
fully recovered. Nonetheless, employment has expanded over the past two
years, and November 2012 unemployment registered at 8.6%, which compares
favorably to the state's 9.6%, but is higher than the 7.4% national
average.

DIVERSE, MODERATELY RESILIENT TAX BASE

The county's tax base is well-diversified, with the top 10 payers making
up just 4.1% of AV. The tax base performed moderately well during the
recession, with a one year 3.3% contraction in fiscal 2010 followed by
very mild reductions in fiscal years 2011 and 2012. This performance was
helped by the maturity of a significant portion of the county's housing
stock, particularly in coastal regions. The county's December 2012 home
values are a significant 29% lower than at their 2006 peak.

AV in fiscal 2013 grew slightly by 0.6%, and Fitch believes the tax base
is well positioned for stronger growth in fiscal 2014 based on the
county's solid home price appreciation over the past year. Zillow
indicates the county's average home value increased 8.6% year-over-year
through December to $427,700. If sustained, this increase could
significantly increase AV for properties subject to Proposition 8 value
reductions (approximately 30% of properties according to management),
and likely will result in an inflationary adjustment to a significant
portion of homes not subject to Proposition 8. The county is projecting
a 2% AV gain in fiscal 2014, which Fitch believes is reasonable, if not
somewhat conservative.

SOUND FINANCIAL PERFORMANCE, BUT RISING PENSION COSTS

The county's financial performance has been very good, with four
consecutive years of general fund operating surpluses and expectations
of surplus in fiscal 2013. General fund operations in fiscal 2012
resulted in an $18.9 million operating surplus (after transfers),
raising the total and unrestricted fund balances to sound levels of
$249.6 million (29.3% of expenditures and transfers out) and $161
million (18.9%), respectively.

The county's fiscal 2013 budget is structurally balanced, as required by
county policy, but the county tends to budget expenditures
conservatively, and is out-performing year-to-date.

The county has implemented prudent and incremental expenditure
reductions and significant pension reforms, but has not had to make
severe cuts to programs and staff. As a result, the county's expenditure
flexibility remains high.

The county has been able to produce operating surpluses by freezing
wages, eliminating positions through attrition, and implementing
efficiencies. The county has also negotiated for both sworn and
non-sworn staff to pay a portion of their pension costs in recent years,
while modifying pension benefits to prevent pension spiking and
establishing less generous benefit tiers.

COUNTY MEDICAL CENTER ON SOUND FINANCIAL FOOTING

The county runs a medical center. Fitch does not view this as a material
credit weakness because the center has been financially well-managed and
the county's operating subsidy has held steady at $15.2 million annually
for five years. County policy caps the subsidy at this dollar amount
moving forward. Net of the subsidy, the hospital has increased its net
assets in each of the past consecutive five years, and is projected to
generate surpluses over the next five years. Management believes that
recent years' federal health legislation will financially benefit the
system.

COUNTY LIKELY TO FACE SIGNIFICANT PENSION COST ESCALATION

The county offers Ventura County Employees' Retirement Association
(VCERA), a defined benefit plan for most of its employees. The
actuarially funded ratio for fiscal 2011 was 80.6%, but drops to an
adequate Fitch-adjusted 72.6% after the discount rate is lowered to 7%
from 8%. The unfunded liability likely will narrow faster than many
other pension systems' due to a rapid 15 year amortization period and no
investment loss corridor.

However, pension cost hikes are projected to out-pace revenue growth
over the next few years, resulting in four years of moderate projected
operating deficits ranging from $6.3 million to $14.3 million. Fitch
expects that the county will continue to adhere to its policy of
structurally balancing its budget.

SOUND DEBT PROFILE

The county's debt profile is good overall, but is weighed somewhat by
slow debt amortization and the formerly mentioned pension cost concerns.
Approximately 25% of principal retires in 10 years. Repayment is slow
because most of the county's debt is new and not because debt is
back-loaded.

The county's net debt burden is a moderate $2,563 per capita, or a low
to moderate 2% of AV, including the series 2013 bonds. The county has no
exposure to variable rate debt, and its capital needs are small after
this issuance. The county's OPEB obligation is minimal, consisting
largely of an implicit subsidy.

Carrying costs (debt, pension, and OPEB costs including the new debt as
a percentage of operating expenditures) are low to moderate at 14.9%,
but likely to rise moving forward as pension costs escalate.

GOOD LRB LEGAL PROVISIONS

The LRBs include a standard lease-leaseback arrangement, a covenant to
budget and appropriate lease payments, and three essential leased
assets. The assets include the portion of the Ventura County Medical
Center that will not be under construction, a jail, and a juvenile
justice center. These assets over-collateralize the bonds, and will be
substituted for the entire medical center (including the wing being
funded by this issuance) upon construction completion.

Insurance provisions are standard, including requirements for general
liability, casualty, and title insurance. The structure also includes 24
months of rental interruption insurance. The debt service reserve fund
is cash funded and sized at just 50% of MADS, as opposed to the IRS
maximum of 100%. However, Fitch views the legal structure as
sufficiently strong that a related notching distinction is not warranted.

Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, Zillow, and the Underwriter.

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